UK car industry on course to reach 2 million vehicles a year

1st July, 2015

When Rover collapsed ten years ago, Britain’s car manufacturing industry appeared to be in disrepute, however the Society of Motor Manufacturers and Traders (SMMT) has recently revealed that the sector is breaking new records, with turnover reaching an all-time high in 2014 of £69.5 billion.

Based on the findings in the SMMT’s 16th annual Sustainability Report, AutoAnalysis has predicted that the number of new vehicles being manufactured in the UK could climb to 1.95 million by 2017, which equates to nearly four cars a minute.

The SMMT’s latest figures confirms an upward trend in the demand for new cars, with vehicle sales, manufacturing output, jobs and export values all experiencing growth. Last year, car production alone grew 1.53 million units, which is the highest level since 2007. There has also been an increase in the number of new vehicles built for the domestic market, which has seen growth of 9.3%, reaching 2.48 million registrations last year.

Productivity rises - environmental impact falls

The industry has also seen huge productivity gains, which is put down to investment in high-tech manufacturing processes. SMMT reports that between 2005 and 2009 there was an average of 9.3 vehicles produced for every person employed in the industry, however in each of the five subsequent years this figure has been 11.5.

In spite of larger production volumes, environmental impact has actually reduced significantly. Landfill waste fell by more than a quarter (26.3%) in 2014 and by a staggering 92.3% since 2000. Water use fell by 10.7% and energy use fell by 10.4%, while CO2 emissions per vehicle dropped by 5% compared to the previous year.

Industry has also made considerable improvement to its already outstanding safety record with the number of workplace incidents per 1,000 employees falling to an all-time low of 2.2 – down 83.9% on 2002, when data was first collected.

CEO of SMMT, Mike Hawes, said “The UK automotive industry can be proud of its achievements as it continues to set new standards. The sector is delivering growth in volumes, turnover and employment, while reducing its environmental impact. Continuing to expand in a fiercely competitive global market is a major challenge and will depend on a supportive economic and regulatory environment which promotes investment to foster innovation and continuing productivity improvements.”

Investment is providing employment

Investment in the automotive industry created 27,000 new jobs in 2014 – an increase of 3.5% on the previous year – and large investments are still being made to create and expand production facilities within the UK. The number of people employed in the industry stands at nearly 800,000 (including manufacturing and retail) and the average worker is now responsible for generating £440,000 in turnover.

An investment in skills has also been essential and employee training has risen by more than a third. The sector also took on some 500 new apprentices and trainees last year.

Export demand is rising

International demand for British-made vehicles has seen continuing growth, with the total export value rising 1.8% to £34.6 billion. Since 2000, it has increased by an exceptional 103.8%. The industry’s direct contribution to the economy saw a 6.2% rise to £15.5 billion last year.

Drivers for change

The biggest driver behind these figures is Jaguar Land Rover (JLR)’s resurgence in the market, since it was purchased by Tata from Ford five years ago.

JLR’s Indian parent has injected £10bn into the company since its acquisition and JLR has seen annual sales double to over 450,000 vehicles. Revenues have nearly tripled in that time to £19.4bn and the company has announced annual pre-tax profits of £2.5bn. Tata plans to invest a further £3bn in the company this year.

At the higher end of the market, Sussex-based luxury car manufacturer Rolls-Royce has seen even stronger growth and sold over 4,000 vehicles for the first time last year. This is a stark contrast to 2005, when the company sold less than 1,000 vehicles.

Professor David Bailey, an industry expert at Aston University, explained that a shift to producing more upmarket vehicles has been a key factor behind the renaissance of the UK automotive industry:

“There are several factors,” he explains. “Some were luck, like the exchange rate with sterling depreciating,……. but foreign owners came in and invested, and Britain’s car industry made the move to upmarket cars.”

“We don’t really make cheap cars any more: in the past 15 years the value of cars produced here has increased by 30pc above inflation.”

A spokesman from Rolls Royce said “The desire for car brands and design never diminished. It was just the money that was needed to make them viable.”

According to Mike Wright, executive director at JLR, investment during the economic downturn was pivotal to the company’s turnaround. He explains: “If you are not designing and engineering great new cars to manufacture and then sell around the world... that’s where you run into trouble.”

Wright also explained that the formation of the Automotive Council under the previous labour government, had led to a more collaborative working relationship between the government and the automotive industry, and that trade unions are also taking “a supportive and sensible policy and work together with rather than against companies.”

This combination of factors has attracted substantial foreign investment and in March of this year, £1bn of investment in UK car manufacturing was announced in the space of just seven days. China’s Geely revealed plans for a new £250m factory to manufacture black cabs; Japan’s Honda said it would spend £200m to make Swindon the global hub for its Civic model; and JLR put the remainder into an engine plant and expanding its design centre.